PBoC says China will not seek competitive devaluation of yuan

The People's Bank of China said on Monday that the country would not manipulate the value of its currency as a tool in its ongoing trade dispute with the US.

In a statement posted to the monetary authority's website and translated by Bloomberg news, PBoC chief Yi Gang argued that the Chinese currency's exchange rate was at "an appropriate " value that reflected China's economic fundamentals and supply and demand in markets.

Yi reportedly also said he was confident that the currency, the yuan, would continue to be strong despite recent fluctuations.

China dropped the price of their currency to an almost a historic low. It’s called “currency manipulation.” Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!

— Donald J. Trump (@realDonaldTrump) August 5, 2019

The PBoC was "fully capable" of keeping FX market operations stable and of keepint the yuan steady at a reasonable and equilibrium level.

"Factors including generally balanced international balance of payment and sufficient forex reserves can keep yuan rate stable," he added.

"PBOC and the State Administration of Foreign Exchange will maintain the continuity and stability of foreign exchange policy."

Yi's remarks came amid open speculation on the part of many analysts that China would indeed allow the yuan to weaken further.

Among them was Julian Evans-Pritchard at Capital Economics, who in a research note sent to clients that the options left to China's leadership to hit back at the US were limited and would carry their own set of potentially hefty associated costs for Beijing.

Evans-Pritchard also noted how tariffs were already encouraging many US companies to shift operations out of China and Chinese policymakers "are unlikely to want to accelerate this trend".

"We expect them to allow further currency depreciation, which will to shore up export revenues," he said.

"But much of the support will need to come from old-fashioned stimulus and we expect both fiscal and monetary policy to be eased more than most currently anticipate."